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1. European Journal of Business and Management www.iiste.org
ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)
Vol.5, No.19, 2013
204
Compensation Management Practices of Selected Companies:
Basis for Compensation Management Program
Manolo Logroño Anto, Ph.D
College of Administrative and Financial Sciences, AMA International University - Bahrain
Email: mlanto@amaiu.edu.bh; dr_anto888@yahoo.com.
Abstract
The purpose of this study was to assess the existing compensation management practices of selected companies
as basis for development of compensation management program. This paper tests a hypothesis that there is no
significant difference in the extent of use of compensation management tools when the selected companies were
classified as large, medium, and small. In conclusion, companies recognized that effective compensation
management improves organizational productivity. They are reluctant however in the conduct of salary survey.
While conducting salary survey posed some disadvantages, it has even more advantages, being an important
function of providing external wage equity, which justifies the wholeness of a company’s compensation
management program.
Key words: salary survey, job evaluation, job classification, salary structure
1. Introduction
Organizations without a formal compensation program generally base the worth of the jobs on the
subjective opinions of people familiar with the jobs. In such instances, pay rates may be influenced heavily by
the labor market or, in the case of unionized employers, by collective bargaining. Organizations with formal
compensation programs, however, are more likely to rely on a system of job evaluation to aid in rate
determination. Even when rates are subject to collective bargaining, job evaluation can assist the organization in
maintaining some degree of control over its wage structure (Bohlander and Snell, 2004).
Compensation is an integral part of human resource management. It is a primary motivation for most
employees. It helps in motivating the employees and improving organizational effectiveness. Good
compensation helps in attracting a quality workforce, maintaining the satisfaction of existing employees, keeping
quality employees from leaving and motivating them for higher productivity. This is one critical aspect to the
success of the organization. HR managers then should need to develop and implement an effective compensation
management program.
2. Literature Review
Ideally, an organization’s compensation system should produce a base salary structure that is both
internally and externally equitable. The job evaluation process should ensure internal equity, while wage surveys
should ensure external equity. The primary objective of any base wage and salary system is to establish a
structure for the equitable compensation of employees, depending on their jobs and their level of performance in
their jobs. Most base wage and salary systems establish pay ranges for certain jobs based on the relative worth of
the job to the organization. An employee’s performance on the job should then determine where that employee’s
pay falls within the job’s range. The key to sound base wage and salary system is the establishment of different
pay ranges for the various jobs within a minimum and a maximum. Wage surveys represent one of the most
commonly used methods for pricing jobs (Byars, 2004).
Salary surveys can be formal or informal. Informal telephone or internet surveys are good for checking
on a relatively small number of easily identified and quickly recognized jobs. Some large companies use their
own formal questionnaire surveys to collect information from other employers. Most of these ask about things
like number of employees, overtime policies, starting salaries, and paid vacations (Dessler, 2000).
Salary surveys play a big role in pricing jobs. Establishing pay ranges involves two basic phases: (1)
determining the relative worth of the different jobs to the organization (ensuring internal equity) and (2) pricing
the different jobs (ensuring external equity). Job evaluation is the primary method for determining the relative
worth of jobs to the organization (Byars, 2004).
Job evaluation is aimed at determining a job’s relative worth. It is a formal and systematic comparison
of jobs to determine the worth of one job relative to another and eventually results in a wage or salary hierarchy.
The basic principle is that jobs which require greater qualifications, more responsibilities, and more complex job
duties should be paid more highly than jobs with lesser requirements. The basic procedure is to compare the jobs
in relation to one another; in terms of required effort, responsibility, and skills. Job evaluation has four methods:
ranking, job classification, point method, or factor comparison. Ranking method is the simplest method that
involves ranking each job relative to all other jobs, usually based on overall difficulty. The point method is a job

2. European Journal of Business and Management www.iiste.org
ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)
Vol.5, No.19, 2013
205
evaluation method in which a number of compensable factors are identified and then the degree to which each of
these factors is present on the job is determined. The factor comparison method is actually a refinement of the
ranking method. It is a widely used method of ranking jobs according to a variety of skill and difficulty factors,
then adding up these rankings to arrive at an overall numerical rating for each given job (Dessler, 2000).
Job classification or job grading is a simple, widely used method in which raters categorize jobs into
groups; all the other jobs in each group are of roughly the same value for pay purposes. The groups are called
classes if they contain similar jobs, or grades if they contain jobs that are similar in difficulty but otherwise
different. There are several ways to actually categorize jobs. One is to write class or grade descriptions (similar
to job descriptions) and place jobs into classes or grades based on how well they fit these descriptions. Another
is to draw up a set of compensable factor-based rules for each class. Then categorize the jobs according to these
rules (Dessler, 2000).
. The next step is to assign pay rates to pay grades. A wage curve is used to help assign pay rates to each
pay grade. The wage curve shows the pay rates currently paid for jobs in each pay grade, relative to the points or
rankings assigned to each job or grade by the job evaluation. The purpose of the wage curve is to show the
relationship between (1) the value of the job as determined by one of the job evaluation methods and (2) the
current average pay rates for the grades. Then, fine-tune pay rates. Fine-tuning involves developing pay ranges
and correcting out-of-line rates (Dessler, 2000).
3. Methodology
This is a descriptive study utilizing self-made survey questionnaire in which validity and reliability
measures were established. To test the hypothesis, a survey on fifteen selected companies in the Philippines was
conducted in 2005 in which the subjects were classified as large, medium, and small. The subjects were
determined by employing stratified random sampling method, while the respondents were the HR managers,
supervisors, and rank-and-file who were randomly picked out to represent each category.
Frequency and percentage were used to determine the existing compensation management practices of
selected companies, and mean for the extent of use of compensation management tools. One-way ANOVA was
used to compare the extent of use of compensation management tools when the subjects were classified as large,
medium, and small as perceived by the respondents.
4. The Findings
In the analysis and interpretation of data, Table 1 with its graphical presentation revealed that the extent
of use of compensation management tools was to a very great extent. Companies believed that effective
compensation management attracts and retains quality employees. It motivates employees, and improves
organizational effectiveness. In the article of Darlington Hank in 2005 on “The Basics of a Good Compensation
Program Part 2”, it highlights the importance of creating a well-thought-out compensation philosophy, and the
establishment of a good compensation program. It also emphasizes the need to determine the performance and
productivity expectations through an equitable and effective wage compensation system.
Respondents however in this study are indisposed in the conduct of salary survey. While companies
recognized the purposes on wage surveys to answer questions of external competitiveness, and in the internal
questions of equity that arise in wage decisions, still some companies believed that they cannot gather the
information necessary for their compensation survey. They realized that other businesses that are contacted
directly may be unwilling to release this information, especially to a competitor. Information refusals and having
a small or incorrect sample size may result in inaccurate decisions when comparing it to the company's
compensation levels.

3. European Journal of Business and Management www.iiste.org
ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)
Vol.5, No.19, 2013
206
Table 1. Extent of Use of Compensation Management Tools as Perceived by HR Managers, Supervisors,
and Rank-and-File
COMPENSATION
MANAGEMENT
TOOLS
HR
Managers
Supervisors Rank-and-File Mean of
the Means
Interpretation
Mean Sd Mean Sd Mean Sd
Salary survey 3.67 0.58 3.73 0.63 3.60 0.60 3.67 Great extent
Job evaluation 4.33 0.58 3.91 0.29 3.90 0.55 4.05 Very great
extent
Job classification 4.33 0.58 4.00 0.31 3.85 0.49 4.06 Very great
extent
Salary structure 4.67 0.58 4.32 0.65 3.85 0.59 4.28 Very great
extent
Over-all Extent 4.25 0.58 3.99 0.47 3.80 0.56 4.01 Very great
extent
Table 2. Differences in the Extent of Use of Compensation Management Tools of Selected Companies
Sources of
Variation
Sum of
squares
Degrees
of
Freedom
Mean
Squares
F – Value Interpretation
Computed Computed
Between groups 6.20 2 3.10
2.35 3.89 Not significantWithin groups 15.80 12 1.32
Total 41.63 14
There were no significant differences observed in the extent of use of compensation management tools
among the selected companies as indicated by the F-ratio of 2.35 in Table 2. This implies that the extent of use
of compensation management tools is almost the same in all of the selected companies regardless of their
classification.

4. European Journal of Business and Management www.iiste.org
ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)
Vol.5, No.19, 2013
207
Table 3. Differences in the Perceptions of HR Managers, Supervisors, and Rank-and-File in the Extent of
Use of Compensation Management Tools of Selected Companies
Sources of
Variation
Sum of
squares
Degrees
of
Freedom
Mean
Squares
F – Value Interpretation
Computed Tabular
Between groups 6.17 2 3.09
0.45 3.23 Not significantWithin groups 288.27 42 6.86
Total 294.44 44
Table 3 shows that there is no significant difference in the extent of use of compensation management
tools among selected companies as perceived by the HR managers, supervisors, and rank-and-file as indicated by
the F-ratio of 0.45. This finding can be interpreted to mean that the three groups of respondents have almost the
same perception in the use of compensation management tools.
5. Summary and Conclusions
Companies recognized that effective compensation management attracts and retains quality employees.
It motivates employees, and improves organizational effectiveness. However, they are indisposed in the conduct
of salary survey. They claimed that other businesses that are contacted directly may be unwilling to release this
information, especially to a competitor. Information refusals and having a small or incorrect sample size may
result in inaccurate decisions when comparing it to the company's compensation levels. While conducting salary
survey posed some disadvantages, it has even more advantages, being an important function of providing
external wage equity, which justifies the wholeness of a company’s compensation management program.
6. References
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Bohlander and Snell 2004, Managing Human Resources, South-Western, International Student Edition.
Briscoe, Dennis R. and Schuler, Randall S. 2004, International Human Resource Management. Routledge Global
Human Resource Management Series.
Byars, Lloyd L. and Rue, Leslie W. 2004, Human Resource Management, International edition, McGraw – Hill.
Carnevale, A. P. 2000, Workplace Basics Training Manual, San Francisco: Jossey-Bass.
Darlington, Hank 2005. The Basics of a Good Compensation Program, Supply House Times, Apr 2005, Vol. 48
Issue 2, p78-81. 3p.
Dessler, Gary 2000, Human Resource Management. Prentice Hall International.
Dessler, Gary 1997, Organization and Management Critical Success Factors, Allyn and Bacon Inc.
Donnely, James H., Gibsin James l. and Ivancevich, Hon M. 1998, Fundamentals of Management, Irwin
Horsewood Inc.
European Industrial Relations Review (October 2006). Collective Bargaining in 2005. Issue 393, pp.23-27.
Franco, Ernesto A. et.al 2001, Training: A How-to-Book for Trainers and Teachers, National Bookstore, Inc.,
Metro Manila, Philippines.
Hellriegel, Don, et al 1996, Organizational Behavior, Fifth Edition, West Publishing Co.
http://jethr.com/magazine/hr-corporate-strategy/compensation-management/article.html
Ivancevich, John M. 2003, Human Resource Management, Ninth Edition, McGraw Hill.
Kleiman, Lawrence S. 2000, Human Resource Management, South-Western College Publishing.
Levesque, Joseph d. 1996, Manual of Personnel Policies, Procedures and Operations, Prentice Hall.
Martires, Concepcion R. 1999, Human Resource Management. National Bookstore Inc. Manila, Philippines.
Newman, Diann and Hodgetts, Richard 1998, Human Resource Management: A Customer-oriented Approach,
Prentice-Hall International.
Robbins, Stephen P. and David A. Da Cenzo 1995, Fundamentals of Management: A Customer-Oriented
Approach, Prentice-Hall International.
Sison, Perfecto S. 1999, Personnel and Human Resources Management, Rex Bookstore, Manila, Philippines.
Manolo L. Anto, Ph.D, Dean, College of Administrative and Financial Sciences, AMA International University
– Bahrain; HR Manager of various companies; Member, Personnel Management Association of the Philippines
(PMAP-Negros Chapter) and Association of Labor-Management Councils; Chairman, Annual Search for Model
Employee/Employer and Best HRM Program. Email: mlanto@amaiu.edu.bh; dr_anto888@yahoo.com.

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